LITRG have responded to the technical consultation on proposed amendment regulations, which allow employers to delay reporting an advance payment of salary (salary advance) made to an employee until payment.
Salary advance schemes have been with us for some years, with numerous companies now promoting them through all areas of the labour market. While some employees may use them occasionally, for others, they are a way of simulating being paid weekly.
One of the key issues with salary advance schemes is that, if used regularly, the fees, while appearing to be modest, can soon add up to a significant amount. These schemes therefore essentially mean that employees are paying a disproportionate price to access their wages on a weekly basis (whereas if employers simply paid weekly, there would be no need for the employee to incur fees to access their wages).
As the schemes are not compliant with tax law, HMRC plan to introduce changes to legislation to accommodate the schemes.
But there are many considerations – the schemes are not currently regulated, there are potential interactions with minimum wage and Universal Credit, the proposed changes fundamentally undermine the ‘on or before’ principle of RTI, they could lead to confusion and unforeseen costs for both employers and employees and there may be other options. For all these reasons and more, we strongly feel that a small technical consultation is not the correct course of action and we call on HMRC to do a full Stage 1/Stage 2 consultation.
Contact: Meredith McCammond
First published: 09/10/23